Under a policy with a specified upper limit, which statement is true?

• A. The insurer will always pay the full amount of the loss.
• B. The insurer will pay up to the policy limit, regardless of the loss amount.
• C. The insurer will pay only a portion of the loss according to coinsurance.
• D. The insurer will pay only the actual cash value.

Answer: (B)

A policy with a specified upper limit sets a maximum amount the insurer will pay for a covered loss. The payment is the lesser of the actual loss (minus any deductible) and the policy limit. So if the loss is smaller than the limit, you get that loss amount (minus deductible). If the loss is larger, you get only up to the limit (minus deductible). This makes the statement that the insurer will pay up to the policy limit, regardless of the loss amount, the correct one because the limit caps the payout. The other options don’t fit: you wouldn’t always receive the full loss if it exceeds the limit; coinsurance applies only if such a clause is in the policy; and paying only the actual cash value would depend on depreciation provisions and does not reflect the limit’s cap.